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Majority Report: Do pass. Signed by 11 members: Representatives Lytton, Chair; Frame, <br />Vice Chair; Nealey, Ranking Minority Member; Orcutt, Assistant Ranking Minority Member; <br />Condotta, Dolan, Pollet; Springer, Stokesbary, Wilcox and Wylie. <br />Staff: Richelle Geiger (786 - 7139). <br />Background: <br />City Business and Occupation Taxes. <br />Local Business and Occupation Taxes (B &O) are levied at a percentage rate on the gross <br />receipts of a business, less some deductions. Businesses are put in different classes such as <br />manufacturing, wholesaling, retailing, and services. Within each class the rate must be the <br />same, but it may differ among classes. Effective April 20, 1982, the Legislature set the <br />maximum tax rate that can be imposed by a city's legislative body at 0.2 percent (0.002), but <br />grandfathered in any higher rates that existed on January 1, 1982. All ordinances that impose <br />this tax for the first time, or raise rates, must provide for a referendum procedure. Any city <br />may levy a rate higher than 0.2 percent, if it is approved by a majority of the voters. Forty- <br />three of Washington's 281 cities levy this tax. <br />In 2003 the Legislature passed a bill that required the Association of Washington Cities <br />(AWC) to convene a committee to develop a model ordinance that would be adopted by all <br />cities imposing a B &O tax no later than December 31, 2004. The Legislature was concerned <br />about the lack of uniformity of the local B &O tax ordinances, and about allegations that <br />some business income was subject to multiple taxation. The legislation requires that the <br />model ordinance have certain mandatory provisions: a system of credits that prevent <br />multiple taxation of the same income; a gross receipts threshold for small businesses; tax <br />reporting frequency requirements; and provisions for penalties and interest, refunds, and <br />deductions comparable with state law. Beginning January 1, 2008, cities that levied a B &O <br />tax had to allow for allocation and apportionment of taxes between cities. <br />City Business Licensing. <br />Approximately 212 of Washington's 281 cities require a business license for any business <br />conducting business activities within the city. Fees associated with the business license vary <br />from flat rate charges to fees based on some combination of employee count, square footage <br />occupied, or business type. For cities imposing a B &O tax, business licensing fees and filing <br />requirements are separate, and in addition to B &O taxes. <br />Administration of Local Business and Occupation Tax and Local Business Licensing. <br />Unlike local sales and use taxes, local B &O taxes are administered exclusively at the local <br />level. <br />In 1977 the Legislature created the Master License Service to streamline business licensing <br />and renewal. The program transferred to the Department of Revenue (Department) on July 1, <br />2011. The Master License Service was renamed to the Business Licensing Service (BLS) to <br />better reflect the program's purpose. The BLS is the clearinghouse for business licensing, <br />partners with 10 state agencies, and facilitates the issuance of local business licenses on <br />behalf of approximately 70 cities. Agency programs and municipalities retain full regulatory <br />control over their registration and compliance requirements. <br />House Bill Report <br />16 <br />- 2 - EHB 2005 <br />